Federal Reserve Board of Governors Releases Subprime Lending Rule

December 19, 2007

The FED released its proposed rule to rewrite subprime lending rules. The proposal is open for comments for 90 days. It would lower the application of the Homeowners Equity Protection Act (HOEPA) to loans that are three percentage points higher than the yield on similar Treasury securities. Currently the number stands at eight percent above treasuries. It seeks to ensure borrowers have the ability to repay the loan; requires lender income verification; prohibits pre-payment penalties within 60 days of an interest rate reset; requires escrow for taxes and insurance for first 12 months for HOEPA loans; yield-spread premiums must be disclosed and agreed to in advance; restricts certain servicer practices; prohibits pressuring appraisers and prohibits certain advertising practices.

To review the proposal go to the FED Web site: http://www.federalreserve.gov/newsevents/press/bcreg/20071218a.htm